The Brexit Breakup

With the U.K. voting to leave the European Union, a look at what happens next

While the details are unresolved, one thing is certain: the United Kingdom’s vote to leave the European Union will unleash a multiyear tussle over how to actually exit the union.

There is no clear road map for how the EU’s third most-populous state will withdraw from the union, but regulations and statements from officials provide a guide through the process.

What's Next for the U.K.

Britain votes to leave EU

David Cameron resigns

New Conservative leader chosen

U.K. would trigger Article 50 to leave EU

Britain votes to leave EU

David Cameron resigns

New Conservative leader chosen

U.K. would trigger Article 50 to leave EU

Britain votes to leave EU

David Cameron resigns

New Conservative leader chosen

U.K. would trigger Article 50 to leave EU

New Conservative leader chosen

U.K. would trigger Article 50 to leave EU

Britain votes to leave EU

David Cameron resigns

David Cameron announced Friday he would resign as Prime Minister within the next three months, just a year after he handily won a general election. The Conservative Party committee responsible for overseeing the leadership process said it intends to choose a new leader by Sept. 2.

The EU would like the U.K. to trigger Article 50—the official notice of its intention to leave—as soon as possible. Mr. Cameron has said that it would be up to the new prime minister.

Exiting the EU

U.K. notifies the EU

Triggers

Article 50

Opens two-year window

Negotiates

Agreement

Consent of EU

Parliament

Independent

U.K.

U.K. notifies the EU

Triggers

Article 50

Opens two-year window

Consent of EU

Parliament

Negotiates

Agreement

Independent

U.K.

Opens two-year window

Negotiates

Agreement

Triggers

Article 50

U.K. notifies the EU

Independent

U.K.

Consent of EU

Parliament

Triggers

Article 50

Opens two-year window

Negotiates

Agreement

Consent of EU

Parliament

U.K. notifies the EU

Independent

U.K.

A member state that wants to exit the bloc needs to first formally notify the other 27 governments, initiating a complex process set out in Article 50 of the treaty. Doing so would open a two-year window—and possibly a longer period—to work out myriad issues, from single-market access for U.K. companies to Britain’s sharing of EU security databases in the fight against terrorism.

Many European politicians indicated they wanted the U.K. out as soon as possible to discourage other countries from taking a similar tack in an effort to get a better deal. “It is very clear. You’re either in or you’re out. You can’t have the cake and eat it,” said Dutch Foreign Minister Bert Koenders, who chaired the Luxembourg meeting of foreign and Europe ministers.

However, German Chancellor Angela Merkel rebuked calls from other European politicians to push Britain into immediately invoking Article 50, and said she wouldn’t pursue a punitive line in exit talks.

Negotiating a Trade Deal

The U.K. may seek to renegotiate free trade with the bloc, a process that could last several years. Norway and Switzerland have deals with the EU where most trade​ in goods​ is not tariffed.

The U.K. could also trade under the World Trade Organization’s “most favored nation” rule, which would give it the same access as other WTO members. This tariff regime taxes thousands of items and classes of items that currently enter the EU tax free.

Businesses and the Economy

The British pound fell to a three-decade low in the day following the referendum and analysts expect a bumpy financial future for the U.K. This anxiety is rippling throughout the business community.

U.S. and European stocks plunged in the aftermath of the vote as investors prepared for political uncertainty and the prospect of lower economic growth. The Dow Jones Industrial Average fell 260.51 points on Monday, down 1.5%, while the Stoxx Europe 600 dropped 4.1%.

For financial firms, it’s difficult to ignore the potential loss of the so-called "passport" that currently lets U.K.-based banks and asset managers conduct business and market products almost seamlessly across the EU bloc.

Money managers from BlackRock Inc, the world's largest asset managers, to U.K. firm Hermès Investment Management, said they may have to make some changes to their London businesses, with industry experts predicting many fund-management jobs could relocate to other EU country capitals.

Looking Ahead

The historic vote plunged the U.K. into political upheaval and raised a number of constitutional questions.

Within hours of the referendum result becoming clear, Sinn Féin leader Gerry Adams demanded a referendum on whether Northern Ireland, which voted by 54% to 46% to stay in the EU, should quit the U.K. and join the Republic of Ireland and form an all-Ireland state.

Meanwhile, Scottish First Minister Nicola Sturgeon says that Scotland’s strong backing for EU membership—it voted by 67% to 33% for Remain—gives her the right to hold a second referendum on Scottish independence, depending on what deal the U.K. government negotiates with the EU.

Even so, analysts don’t expect a breakaway bid from Scotland to be an immediate threat because it isn’t clear there would be sufficient support for secession. A vote for Scottish independence in 2014 failed 55%-45% and the economics of an independent Scotland look even worse than they did at that time.